Theoretical basis for assessing the creditworthiness of bank borrower.

Oleksandr Syrchyn
PhD in Economics, Associate Professor, Department of Banking, Odessa National Economic University, Ukraine, е-mail:aleks_syrchin@ukr.net, ORCID ID:https://orcid.org/0000-0002-7206-4439

Cite this article:

Syrchyn, О. (2018). Theoretical basis for assessing the creditworthiness of bank borrower. Ed.: M. Zveryakov (ed.-in-ch.) and others [Teoretychnі osnovy otsіnky kredytospromozhnostі pozychalnyka banku; za red.: M. I. Zveriakova (gol. red.) ta in.], Socio-economic research bulletin; Vìsnik socìal’no-ekonomìčnih doslìdžen’ (ISSN 2313-4569), Odessa National Economic University, Odessa, No. 1 (65), рр. 153‒160.

Abstract

The article offers a scientific and practical approach to assess the creditworthiness of Ukrainian bank’s borrower. As a result of the conducted research, it is proved: 1) the existing problems of assessing the creditworthiness of borrower are based on banks’ attempts to make unsecured loans and do not create reserves for credit risk by their own expenses; 2) the potential creditworthiness of any borrower is zero and implies a 100% credit risk; 3) credit risk reduction and improvement of the borrower’s creditworthiness are only possible by taking of security under credit agreement by the bank; 4) the sum of a potential loan depends entirely on the amount of the security provided by the borrower under credit agreement; 5) the net credit risk has to be fully covered by the bank’s own expenses for the formation of reserves for this risk.

Keywords

commercial bank; credit activity of bank; bank’s loan portfolio; creditworthiness of bank borrower; credit risk of bank; credit risk of bank borrower; expenses of bank; bank reserves for credit operations.

JEL classification: G210; DOI: https://doi.org/10.33987/vsed.1(65).2018.153-160

UD classification: 336.7

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